Leaked: draft EU Communication on New Electricity Market Design

As announced in the Energy Union Strategy Framework, the EU Commission is preparing ‘an ambitious legislative proposal to redesign the electricity market and linking wholesale and retail.’ The idea is that this ‘will increase security of supply and ensure that the electricity market will be better adapted to the energy transition which will bring in a multitude of new producers, in particular of renewable energy sources, as well as enable full participation of consumers in the market notably through demand response.’

The EU Commission’s draft document was leaked to me today (24 June 2015). Its title is ‘Launching the public consultation process on a new energy (sic!) market design.’

The electricity (for it’s about electricity, not energy) market design communication is part of the Energy Union ‘Summer Package’, which is expected to be published on 15 July 2015.

The ‘consultative communication’ on New Electricity Market Design has 5 paragraphs:

A vision for the transition of the electricity system (p 1)

Delivering the new electricity market for the European Union (p 3)

Making the market work

Adapt market design to renewables and support schemes to markets

Linking wholesale and retail markets to deliver a new deal for consumers

Stepping up regional cooperation in an integrated electricity system (p 8)

Regional coordination of national policymaking

Improving interconnections

Cooperation between System Operators

Adapting the regulatory framework to integrated markets

A European dimension to security of supply (p 11)

Alignment of methods to determine generation adequacy

Standards for system adequacy

A framework for opening capacity mechanisms across borders

Next steps

In short

The new framework is to deliver 3 market arrangements:

‘To move towards an interconnected EU-wide electricity market providing clear price signals for new investments and facilitating the further development of renewables;

To promote regional cooperation and coordination on energy policies, new generation, support schemes to renewables and interconnections;

To provide a truly European dimension to security of supply.’

Comment

Good to see – and important to note – that the goal of the new market design is to accomplish a transition to a future-oriented electricity system. However, a key issue that is insufficiently highlighted is divestment (or dis-investment) from surplus, high-carbon resources. All the talk about new renewables investment being driven by the market is useless unless the divestment issue is tackled head on. A market that doesn’t need new capacity investment (because of oversupply) won’t drive new investment in anything – renewables or otherwise. Considering how much new renewables investment is needed to reach EU’s 2020 and 2030 climate and energy targets, it is unclear how the market will drive that level of investment without a deliberate program of (early) retirement of existing resources, targeting those that do not add to the flexibility of the system or are incompatible with established environmental objectives. Perhaps the German ‘climate levy’ for old lignite-fired power plants can serve as an example of how to address the divestment issue.

Document

You can find the leaked document here. If you want to use the leaked document for a blog, paper, article, or if you want to share it on social media, please use its original source, that is: this blog. Many thanks!